• There haven’t been many headlines about housing affordability in Australia over the past year. Most have been dominated by bearish price forecasts.
• Macquarie Bank says those trends may change in years ahead.
• It says national housing completions will fall heavily in the period ahead given the recent trends in building approvals.
• From a broad perspective, it says there’s not much evidence of overbuilding outside of specific locations, even with the record pipeline of homes that have been completed.
• Should population growth remain firm, Macquarie says “murmurings about housing affordability will re-emerge in the not-too-distant future”.

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While the debate about whether Australian housing is affordable rages on, headlines on the topic seem to have dropped off the radar over the past year, lost in a sea of increasingly pessimistic forecasts about just how far prices will fall.

Macquarie Bank thinks that may change in the not too distant future.

Given just how steep building approvals fave fallen in recent months, particularly in the apartment sector, it points to a large decline in newly-completed homes in the years ahead, reducing downward pressure on prices on the supply-side of the equation.

“Dwelling construction is likely to fall faster and further than we previously forecast,” says Ric Deverell and Justin Fabo, economists at Macquarie.

“The recent annualised run-rate of around 220,000 starts is increasingly likely to fall to around 150,00 to 160,000 this year, below underlying demand of around 180,000 dwelling per annum.

“Higher density housing construction, particularly high-rise apartments, will fall much more sharply than detached house construction amid the retreat of both domestic and foreign investor demand.”

Given the likelihood of a steep drop in the level of new housing supply, Macquarie says this carries the potential to gradually slow, then eventually reverse price falls, should population growth remain strong.

“While dwelling construction in Australia is now clearly in a down cycle, it isn’t clear that there has been widespread overbuilding of homes in recent years,” Macquarie says.

“[Outside of Sydney] the rental vacancy rate has actually fallen a little over the past couple of years to be a bit below average, providing some evidence that widespread overbuilding of dwellings at the national level has not occurred.”

“Going forward, as dwelling completions decline and population growth is expected to remain strong, it appears likely that murmurings about housing affordability will re-emerge in the not-too-distant future.”

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